What a Fool Believes

The Motley Fool’s gospel of entrepreneurial philanthropy

In 1993, David Gardner and his brother Tom co-founded The Motley Fool, a small-circulation personal finance newsletter that took a humorous and often skeptical look at the conventional “wisdom” of Wall Street. The Fool’s self-professed mission: “to educate, amuse, and enrich.” Since they took their act online in 1994, The Motley Fool has been educating, amusing, and enriching quite a few people—their Web sites attract over 1.5 million readers each month and their column on personal finance appears in 137 newspapers. All four of their books, including the current Rule Breakers/Rule Makers, have been New York Times bestsellers. In its five-year history, David Gardner’s “Foolish” stock portfolio, which is updated daily, has achieved an amazing 70 percent annualized return.

Barron’s describes the Fool as “The best place online for talking with investors” and “amusing, as well as educational.” New York magazine calls them the “premier investment site in the cyberswirl.” And according to the Economist, the Fool “stands out as an ethical oasis in an area that is fast becoming a home to charlatans.”

More recently, the Fool has been expanding that oasis to include help for the less fortunate. In 1997, David Gardner initiated a program to raise money online through the Fool for Share Our Strength, a charity that provides food for poor Americans, with impressive results. Philanthropy spoke with Gardner at “Fool HQ” in Alexandria, Virginia.

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PHILANTHROPY: The Internet is obviously an exciting development for the field of giving, and there has been a lot of talk about what effect it might have on philanthropy. You’ve written on this, and made an interesting venture into this intersection with your Share Our Strength project. What lessons do you draw from that experience?

MR. GARDNER: Well, there are two kinds of people out there. I don’t want to be overly simple or reductionist, since there are others who won’t fall into these categories, but there are two pretty significant groups. One is people who really think for themselves and want to see for themselves the direct results of their giving. I think those are to a large extent the same people who make their own investment decisions. This is the smaller group right now, though we are trying to grow this group.

Now there’s another group of people who are otherwise inclined. They may really love a hobby like, say, pottery, or their job. They are wrapped up in what interests them, but they simply aren’t very interested in things that they see as outside of that. They don’t really care very much about following their investment decisions—and these are the same people who are not going to be inclined to track the specific results of their philanthropy. They may in the abstract want to give, think it’s good to give, etc., but they aren’t really very concerned with the result of their giving. Of course, ultimately, they like to think that the result of their giving is good, and they probably conclude, automatically, as soon as they sign their checks, that what they have done is good. I know I have fallen into this trap myself in the past, of just writing a check, patting myself on the back, and saying “Oh I feel good about myself now, so this must be a good thing.”

But obviously there are situations where in fact doing that hasn’t been such a good thing—far from it. There’s fraud, of course, and people who use charitable dollars in a malicious way. And, almost as bad, there’s a lot of philanthropic money that goes to people who just don’t use it well.

It all returns to the theme of personal responsibility, which is at the heart of incentives and the for-profit model. That’s a real focus of ours at The Motley Fool.

So what we did is, we tried through our effort with Share Our Strength to appeal to both groups of people that I identified. For the first group, the people who want to know exactly what happened with their money, we went to great lengths to identify for them exactly how their money was going to be used. We laid out the whole dynamic of the community kitchen, where their money would be going specifically, what it would buy, how it would work. But for other people, those in the latter group, we recognized that they just wanted us to tell them what was a good thing to give to, and so that’s what we did. So we deliberately reached out to both groups of people, both types of would-be donor, and we raised $125,000 last year and $200,000 this year. It’s just a drop in the bucket in terms of giving, but I think it suggests what can be done.

And we did this as a for-profit company. Actually it was the cause of a big internal debate: Should we even be doing this? We’re a young Internet startup company. We had a healthy debate about it and concluded that yes, this was the type of thing that we wanted to be doing.

Looking ahead, I believe there is about to be a lot more individual giving. And as giving increases, it will boil down to a more individual level, as opposed to being plowed through intermediaries. In this sense we are at the dawn of a new era, and I think that’s a wonderful thing. As an economy we have created far more than we need to spend right now, to spend for subsistence, or for getting by. When we have enough that most people living below the “poverty line” have color televisions, we have enough that we don’t have to spend it all just to keep up. And from these surpluses comes this venture capital that can be plowed back in to address what we decide are our problems.

PHILANTHROPY: You touched on this notion of people making their own philanthropic as well as financial choices, doing their own research, not just relying on others, but wanting to do it themselves. Is the Internet going to be able to help these would-be donors spend their philanthropic dollars more efficiently?

MR. GARDNER: I think it’s great that we’re using a word like “efficient” in the context of philanthropy, and I think it’s going to be used in that context a lot more often in the future. “Efficiency” sounds cold and clinical and heartless, but that’s what it really comes down to.

Again, due to the Internet you can already get a fair amount of information about nonprofits, more than was ever possible before. A lot of nonprofits today have web sites. I’m looking forward to the time when we have snapshots of these organizations, almost like baseball cards with box scores. There will be stats that can show how efficiently each organization is using capital, and where specifically the money is going. Consumers will be able to compare one organization against another, measuring efficiency and results.

That’s going to happen. We have talked about The Motley Fool doing it. Right now we’re essentially doing that for for-profits. The next step is to do it for nonprofits. You have to standardize it. You could standardize it in the same way that Value Line presents a page for every for-profit company of consequence, providing objective data that consumers can use to make valuations and decisions.

PHILANTHROPY: Sort of a Value Line for nonprofit “investors”?

MR. GARDNER: That’s right. I view that as inevitable. What will that do? It will further increase the efficiency of capital. Capital will not go to the organizations that waste it. It will not go to organizations that are currently hiding behind non-accountability, or to those that in the end aren’t really creating anything of value. Capital will go to the organizations that can show the kinds of results, the kinds of “returns” that investors are looking for.

PHILANTHROPY: OK, the venture capital model works for for-profit businesses, but is it relevant for nonprofits as well? Aren’t many of the services that nonprofits provide just inherently unaddressable by for-profit enterprises and the market?

MR. GARDNER: In some cases, I think it’s more that people haven’t been trying hard enough. I really do. I believe that given enough time and work and creativity you can create a for-profit model to feed the hungry, or to find solutions to a number of other social problems. I think that there has been a failure of imagination.

Part of it is that we’re still learning what capitalism can do. And as that knowledge improves, entrepreneurs will do what they always do—find solutions that people are willing to pay for. By getting someone to buy your product you are creating a solution. And due to the competition that is at the heart of capitalism, these solutions always have to keep getting better, faster, stronger, more efficient—and cheaper.

PHILANTHROPY: Traditionally, many people have looked to the government to provide these “solutions.”

MR. GARDNER: There are plenty of things the government can and should do, of course. Now the government helped create the Internet. . .

PHILANTHROPY: You mean Al Gore did.

MR. GARDNER: [Laughs] No comment. We fellow St. Albanians have to stick together. In fact, come to think of it, yes, it was Al Gore.

PHILANTHROPY: One of the interesting things about the Fool books and site is that the information there seems relevant for people with $100 to invest or $100 million. But the focus there is on “personal finance.” Should foundations get more Foolish? Many foundation trustees figure, rationally enough, that because they are not financial professionals themselves—and because they can afford it—that the most responsible thing to do is to turn over financial decision making to the big and expensive names. Are trustees right to delegate in this manner?

MR. GARDNER: One of the phrases we use all the time at The Motley Fool is “Pay more to earn less,” which we think characterizes the ignorant use of the financial services industry. First of all, I think that it behooves any trustee or board member of a foundation or of a nonprofit that is making financial decisions—and you are certainly making a financial decision when you decide to hand those decisions off to somebody else—to at least inform themselves of how the financial world works. Even if you don’t ultimately want to make the financial decisions or be involved with the financial aspects, even if you don’t want to be the one figuring out what the best stocks are or what the best funds are, it is critical that you understand a few things.

One thing that everyone should understand is the index fund. That’s our first step of Foolish investing. Index funds represent the whole market, and as “unmanaged” funds, they typically have much lower fees than “managed” mutual funds. Once you figure out that you can pay just 0.2 percent to have your assets managed and still beat 92 percent of all mutual funds—that changes a lot of people’s perspective. Right now there’s a relatively small percentage of money in the index funds, and a huge amount of money in the managed funds. How long can this situation persist? Not that long. And so what’s going to happen is that there’s going to be a giant sucking sound as money pours away from the expensive managed funds into index funds. And that’s the kind of thing that board members and trustees can and should understand, whether their organization has $100 or $100 million.

Another thing that you can and should understand is the aspect of time. Sure, you can invest in an index fund and have it go down next year, and have your would-be grant recipients get all mad at you and not like you anymore. But we want people to understand that if they plan to have that money for at least five years or more, we think a portion of their assets—we’d even say for some people all of their assets—should be in the index funds. Almost nothing has performed better over the long term, and really, the long term is all we’re ever talking about at the Fool. Again, that’s just one thing. It’s not the “whole financial world,” which some people find so intimidating, but it’s an example of something that anyone can learn. That’s the first step we tell people to take: Demystify. Understand the context.

So the first step at The Motley Fool is to demystify. The second step is to—and I hate this word, but we use it anyway—is to empower people to make their own financial decisions. Once something has been demystified—be it finance or philanthropy—people are more comfortable and more capable of taking control of their decisions. I think every steward, every foundation trustee, every manager of a nonprofit—in fact anybody who is managing other people’s money—has to go through those two steps. Otherwise, they are being irresponsible.

PHILANTHROPY: A lot of people have made a lot of money during this economic boom. What lessons can the philanthropic world take from the “new economy”?

MR. GARDNER: Many of these people are doing well, but there are only a few who have. . . heart, who really understand what a mission is. And that sense of mission is so important, whether it’s a for-profit or a nonprofit.

Let me give you an example. I’m a Steve Jobs fan. I’ve never owned an Apple computer, never owned Apple stock—I’m not even that bullish on the long-term prospects of the company—but I like his entrepreneurship. Apple sort of lost its way while he was away from the company, but since he came back in 1998, the stock has about tripled. Jobs came back and he would sit down in meetings and he would immediately say “What are we doing here?” and “Why are we meeting now?” He was constantly lighting a fire under people, and making it clear that it was his perception that there were too many people who were there just to take paychecks. They didn’t feel the mission of Apple. They had lost that in the years when he had been away. And so he would walk around the halls at Apple and go up to people and say, “25 words or less—what have you done to benefit Apple today?” He’d go right into people’s faces, ask them this while they were standing at the urinal, asking what they had done to benefit Apple that day.

And that kind of focus, that entrepreneurial spirit, is exactly what people need in the philanthropic world today. The charitable organizations that are going to succeed in the new venture capital economy are going to be those that have that sense of urgency. You’re part of the solution or you’re part of the problem. And it’s easier to attract that sensibility, to create it and keep it, in a for-profit framework, even if the mission is one that we now think of as the kind of thing that can only be addressed by nonprofits. Looking to the future, for-profit doesn’t have to be the case, but I think it inevitably will be the case more and more often.